Breaking News Trade Example, WATT +33% on Rumors and Market Chatter
Finding the Momentum
As a momentum day trader our goal is to find stocks that are running. There are several ways to find momentum but the primary method is looking for stocks that are already beginning to move and then quickly hunt for a catalyst. In the mornings we look at the gap scanners. We see stocks already moving higher in the pre-market session and begin doing our research to understand the catalyst. These stocks become the watch list for the Gap and Go Trading Strategy. On some mornings we don’t have any good stocks gapping up pre-market and that means we have to find momentum in a different way. I use several streaming news services to get breaking news as quickly as possible. I also use my stock scanners to find potential setups. A slow day can be the biggest day of the year when we have the right breaking news. Before you read any further remember that breaking news is one of the highest risk types of trading. Stocks can spike quickly on breaking news and return right back to where they started (remember when $RCPT spiked from the $160’s to $200 and then came right back down?). If you choose to trade news you have to be willing to quickly get out of trades that aren’t working. We trade the momentum and when it stops, we move out of the way.
How to trade Breaking News
When I trade breaking news I usually look to jump in on the first pullback, if the stock doesn’t pull back I will use 1min breakouts on the first candle to spike up, or buy over a critical resistance level such as a half dollar or whole dollar. In the case of $WATT today I jumped in for the break over 8.50 and a potential move to 9.00. I first noticed the stock surging up on my High of Day Momentum Scanner and started hunting on the news feeds for a catalyst. I saw the headline and noticed specifically that the headline included a mention of Apple. Whenever I hear market chatter or traders talking about potential Apple deals I watch closely. Many times when a stock has news or rumors of a contract with Apple it results in major volatility. Volatility is what we look for as day traders. Whether you are long biased or short biased, there are opportunities to trade stocks that spike due to breaking news. Almost every single day you will see a stock spiking on breaking news. This is part of the volatility of the market that day traders are attracted to. Often times the headlines end up being “chatter”, “speculation”, or “rumors”. As they say, buy the rumor, sell the news. As momentum traders we look for stocks surging up or down and try to find opportunities for trades. Based on my Momentum Trading Strategy I will look for flags and critical areas of resistance.
Breaking News Headlines Posted on Streaming News Services
Seeking Alpha Article – More on Energous: CNNMoney discusses licensing deal (updated), “Some bulls have speculated the company in question is Apple.“
These are my scanners I have built using Trade-Ideas software.
When is news real? Confirmed vs Unconfirmed
Remember, news is rarely confirmed immediately as being accurate. Breaking news that comes right off the wire can be speculative and inaccurate. A few weeks ago we took a trade on AVP after shares spiked up on news of a buyout offer. It turned out the buyout offer was fake. It didn’t stop the stock from running up 10% but it’s important to always keep this in mind when trading breaking news. We trade momentum and when the momentum changes, we are ready to change the direction of our trade. This same thing happened on AMZN and it even happened today on WATT after traders said the news was a rehashing of old news. This part of the ebb and flow of trading.
$AMZN spiked up 1/21/15 on news the Carl Icahn, an activist investor, had taken a stake. Then just after 11:15 you can see news came out that the previous headline was false and the stock dropped. This is very common. When we trade intraday news there is always a higher level of risk.